EXHIBIT 10(iii)A
FY 98 STANDARD VARIABLE COMPENSATION PLAN
(SEPTEMBER 1, 1997 - AUGUST 31, 1998)
OBJECTIVE
To pay additional cash beyond base salary to eligible employees
of Farmland Industries, Inc. or one of its units, contingent upon
the company's financial performance. Farmland Industries, Inc.
("Corporate") must achieve a threshold or minimum income before
extraordinary items, or no payout occurs, regardless of
individual business/service unit results.
This plan includes three important exhibits which are an integral
part of the plan structure. Please be aware of and consult them.
They include the following:
Exhibit A -Corporate and Unit financial performance criteria
and levels
Exhibit B -A summary schedule of payout opportunities by
earnings level
Exhibit C -Descriptions and definitions of accounting terms
and methodologies relevant to this plan
PLAN STRUCTURE
The plan provides a one-time cash payment following the
conclusion of FY 98 to eligible employees for the attainment of
corporate and unit objectives. The corporate standard measure is
Return On Equity (ROE). The standard business unit measures, in
addition to corporate ROE, are Return On Assets (ROA), earnings
after interest, and cash flow, in approximately equal weighting.
With Senior Management approval, including the Chief Executive
Officer, a business unit may be based completely on corporate
ROE. Alternatively, a business unit may be based on corporate
ROE and on fewer than all three of the standard unit measures,
with full Senior Management approval. These splits do NOT apply
if the business unit variable payout is based solely upon
corporate ROE.
Corporate employee payout under this plan results entirely from
corporate ROE. Business unit employees shall also be based 100%
on corporate results unless they are either (A) direct members of
a unit head's management team, or (B) direct reports to a member
of the management team, and with management responsibilities
themselves, either for other employees or for major processes.
If in (A), the split for payout is 30% corporate and 70% business
unit; if in (B), the split is 50 % corporate and 50% business
unit.
A further requirement for payout to Farmland Industries, Inc.
Vice Presidents and above serving on the Management Council is
that cash patronage payments to members must occur; if not, this
group will receive no payout under the terms of this plan.
ELIGIBILITY
The following types of employees are ineligible for payout under
the Standard Variable Compensation Plan:
. Employees whose terms and conditions of employment are subject
to collective bargaining.
. Employees hired after 5/31/98. (Waived if the employee is a
former regular full time employee during FY 98. Payout is
prorated.)
. Regular part time employees with less than 500 hours of
service during FY 98
. Temporary employees with less than 1000 hours of service
during FY 98
. Employees terminated for cause prior to 8/31/98
. Employees who terminate voluntarily prior to 8/31/98
(Employees who terminate to accept a position with a member
cooperative may be eligible for a prorated payout.)
. Employees included in variable compensation plans other than
the standard variable compensation plan. Exceptions must be
approved by Senior Management of the affected area and by the
VP, Human Resources.
Certain classes of employees who terminate prior to the end of
the fiscal year will receive payout based on their eligible
earnings during the year:
Death/Disability
Retirement
Reduction in Force
Focus Team member obtaining outside employment
Layoff
Leave of Absence
Hired after 9/1/97 but before 5/31/98
Involuntary separations, other than for reasons included in the
list above, which are not for performance or for cause, may
result in prorated payout.
Employees who voluntarily terminate prior to 08/31/98 for the
purpose of assuming a position with an Farmland system
cooperative may be eligible to receive a payout. To secure
eligibility, the employee must notify Corporate Human Resources,
in writing, at the time of separation and ensure that the
Farmland system cooperative notifies Farmland's Corporate Human
Resources Department, in writing, to verify employment from the
point of separation through the conclusion of the plan year.
Employees on formal disciplinary or performance probation are
ineligible for that portion of the fiscal year.
Employees who transfer from one business/service unit to another
receive a prorated award based on the goals attained and eligible
gross wages paid or the salary range midpoint in each unit.
DETERMINATION
OF PAYOUT
Payout is determined as a percentage of eligible gross wages or
salary paid during the fiscal year. Business unit or corporate
performance measurements are labeled "threshold", "target", and
"maximum".
Threshold - The minimal performance level required for the plan
to pay out. No payout occurs for achievement below
threshold.
Target - Identifies the actual performance objective.
Maximum - A performance level exceeding target at which the
payout as a percentage of eligible gross wages or
salary is frozen. No payout occurs beyond these
percentages regardless of performance.
Payout for performance between threshold and target
or target and maximum is prorated.
APPROVED:
________________________________________
H.D. Cleberg
President and CEO
EXHIBIT A
FY 98 PERFORMANCE CRITERIA AND GOALS
CORPORATE:
Threshold Target Maximum
Return on Equity 8% 14% 20%
**Business Unit:
Threshold Target Maximum
Cash Flow
Return on Assets
Earnings after interest
** If Business unit measures are used, then key unit personnel are paid
variable pay on the following basis:
A.Direct members of the unit head's management team - 30% corporate/
70% unit
B.Direct reports to members of the management team who have
management responsibilities, either for Farmland employees, for
major processes, or both - 50% corporate/50%business unit.
EXHIBIT B
FY 98 STANDARD VARIABLE COMPENSATION PLAN
V COMP CALCULATION
THRESHOLD TARGET MAXIMUM EARNINGS POINT **
3 5 8 All Non-Exempt/Truck Drivers Any Earnings
3 5 8 Below $35,000 Exempt Actual Earnings
3 6 10 $ 35,000 - $ 38,499 $ 36,750
4 7 12 $ 38,500 - $ 42,349 $ 40,425
5 8 15 $ 42,350 - $ 48,699 $ 45,525
5 10 18 $ 48,700 - $ 55,999 $ 52,350
6 12 22 $ 56,000 - $ 64,399 $ 60,200
7 15 27 $ 64,400 - $ 74,059 $ 69,230
8 18 33 $ 74,060 - $ 85,169 $ 79,615
10 22 40 $ 85,170 - $ 97,949 $ 91,560
12 25 46 $ 97,950 - $112,639 $105,295
12 25 46 $112,640 - $129,539 $121,090
12 25 46 $129,540 - $148,969 $139,255
14 28 52 $148,970 + Actual Earnings (Non -
FII Exec)
** I.E., for any exempt employee whose earnings fall within a particular range,
the payout is calculated on this middle value.
EXECUTIVES
THRESHOLD TARGET MAXIMUM EARNINGS V COMP CALCULATION POINT**
18 36 67 Designated FII Executives
22 45 83 Designated FII Executives
25 50 92 President and CEO
$ 90,000 - $107,999 $ 99,000
$108,000 - $129,599 $118,800
$129,600 - $155,519 $142,560
$155,520 - $186,619 $171,070
$186,620 - $223,939 $205,280
$223,940 - $268,729 $246,335
$268,730 - $322,479 $295,605
$322,480 - $386,979 $354,730
$386,980 - $464,379 $425,680
$464,380 - $557,259 $510,820
$557,260 - $668,709 $612,985
$668,710 - $802,449 $735,605
$802,450 + Actual Earnings
** I.E., for any exempt employee whose earnings fall within a particular range,
the payout is calculated on this middle value.
Note: These scales remain unchanged from Fiscal Year 1997.
EXHIBIT C
ACCOUNTING TERMS AND METHODOLOGY
DEFINITIONS
INCOME is defined as income before taxes and extraordinary items as reported for
Key Results purposes.
EQUITY is the prior year's ending equity. Equity includes all capital shares
and equities (preferred, common and associate member shares, patronage refunds
for reinvestment, and earned surplus). It does not include minority owners
equity in subsidiaries.
RETURN ON EQUITY (ROE) is the ratio determined by dividing Income by Equity.
CASH FLOW will be measured by using the Net Cash Generated formula of net income
plus beginning assets minus ending assets. The assets are those reported for
Key Results purposes, and at the business unit level, exclude such items as
prepayments and redating of inventory.
AVERAGE ASSETS are the key results assets averaged by adding the previous year-
end assets, September through July ending assets multiplied by two, the current
year ending assets and dividing by 24.
RETURN ON AVERAGE ASSETS is the ratio of income divided by the Average Assets.
EARNINGS AFTER INTEREST is the Key Results income for the operating unit after
interest, other income and joint venture income.
TREATMENT OF THE VARIABLE COMPENSATION EXPENSE
The ROE targets have been expressed after the recognition of the variable
compensation expense. In calculating the level at which variable compensation
will be paid, the variable compensation expense is added back to Income. For
example, assume Equity is $826,445,000 and the ROE for threshold is expressed as
8%. This would correspond to Income of $66,115,600 (.08 times $826,455,000).
However, the $66,115,600 includes variable compensation expense (variable
compensation expense is budgeted at target and an accrual is made each month).
EXAMPLE OF REQUIRED INCOME*
(ASSUMING PRIOR YEAR ENDING EQUITY OF $826,445,000 MILLION)
ROE Required Income
Threshold 8.0% $ 66,115,600
Target 14.0% $ 115,702,300
Maximum 20.0% $ 165,289,000
* Actual FY 97 ending ROE has yet to be determined. When it is, these
income figures will be subject to some modification.
DETERMINATION OF EXTRAORDINARY ITEM
If Farmland achieves its performance goals, but experiences a loss year due to
extraordinary items, the Board of Directors of Farmland Industries, Inc.
maintains the discretion to authorize, adjust, or deny payout of the management
portion of the Variable Compensation Plan (See the definition of management
employees in the main plan document and in Exhibit "A"). This also applies to
management level employees who participate in customized plans. Employees on
sales incentive plans, with base pay administered at a lower level, are NOT
affected by this provision unless specific portions of their plans are tied to
corporate performance.
GUIDELINES FOR "EXTRAORDINARY" DESIGNATION
The Chief Financial Officer and the Chief Executive Officer must approve the
classification of any item as "extraordinary." Transactions deemed as
"extraordinary" and therefore excluded in the determination of Income for
variable compensation include:
. The punitive portion of litigation results in favor of or against Farmland,
excluding redemptive payments on normal business matter where the intent is
to substantially restore net income to where it would have been had the
incident not occurred.
. Non-recurring (one-time) adjustments to income or expense such as the gain
from settlement of the retirement plan. Any such items would generally be
reported as extraordinary items on Farmland financial statements under
generally accepted accounting principles.
. The gain or loss on the disposal of a major asset, group of assets, or
investments.
. The gain or loss from any new business activity or business unit added
subsequent to the approval of the Business Plan, provided that the
acquisition was such that it required specific Board of Director approval
outside of the business plan.
. The impact of adjustments resulting from LIFO inventory computations or
reserves.
. Other items as approved.
Specific requests by an operating unit for treatment of an item as
"extraordinary" must be approved by the Senior Management representative
before review by the Chief Financial Officer and the Chief Executive
Officer.
DETAIL ON DETERMINATION OF PAYOUT
NON-EXEMPT EMPLOYEES:
Payout is determined as a percentage of eligible gross wages paid from
9/1/97 to 8/31/98.
Note: Eligible gross wages may exclude some lump sums.
EXEMPT/MANAGEMENT EMPLOYEES:
Payout is determined as a percentage of the V Comp Calculation Point
based on eligible gross wages from 9/1/97 to 8/31/98. Exhibit B grid lists the
percentage opportunities assigned to each V Comp Calculation Point.**
NOTE: Lump Sum amounts given during the fiscal year will not be
included in Eligible gross wages unless they were given in lieu of merit
increase.
**V Comp Calculation Point and designated percentage will be used
unless comparison to FY96 salary range midpoint and grade determined
percentage compute a higher payout amount. Individuals who are hired,
promoted or demoted after 9/1/96 are ineligible for this comparison.